The elimination of the Inflation Reduction Act’s clean vehicle tax credit in the Trump administration’s “Big Beautiful Bill” is raising urgent questions for the electric vehicle industry in the United States. How will this impact demand? Can American vehicles compete against Chinese vehicles? And where should companies now source critical minerals?
Known as 30D, the tax credit incentivized the sourcing of critical minerals from free trade agreement (FTA) partners and non-Chinese owned companies for vehicles to qualify for the $7,500 credit. This created a premium for minerals from Australia, Canada, and Chile, helping to stimulate the development of alternative supply chains. Producers without FTAs – such as Indonesia and the Democratic Republic of the Congo – were excluded.
But the tax credit’s elimination is shifting the calculus on critical mineral sourcing. U.S. strategy must evolve accordingly, particularly in relation to Indonesia, where the current market trajectory is increasingly untenable.
Dubbed the “OPEC of nickel,” Indonesia has transformed the global nickel market through a raw export ban and a surge of Chinese investment. In 2024, Indonesia accounted for 60 percent of global nickel production and majority Chinese owned companies accounted for approximately 80 percent of battery grade nickel production. Despite criticism over weak environmental and labor standards and overproduction, Indonesia’s low-cost supply continues to expand – driving down prices and forcing competitors in Australia and New Caledonia to suspend operations. As Jorge Uzcategui, cobalt and nickel senior analyst at Benchmark Mineral Intelligence, noted, Indonesia’s market share grows “day by day.”
The International Energy Agency (IEA) projects Indonesia will account for 67 percent of mined nickel by 2030 and 75 percent by 2040, while production in countries like Australia, Canada, and the Philippines declines. Weak EV demand in the United States – exacerbated by the loss of the 30D tax credit and broader economic uncertainty – is likely to depress prices further, reinforcing Indonesia’s dominance.
Ford is the only major U.S. company invested in the battery supply chain in Indonesia. They partnered with Vale Indonesia and China’s Huayou Cobalt, one of the leading nickel refiners and midstream producers. Aware of the negative view toward Indonesia, Ford’s press release stressed the project meets their high ESG standards and the nickel will be “mined in line with our company’s sustainability targets.” Nickel rich lithium-ion batteries remain the most popular battery choice in the United States for EV manufacturers because the nickel-based batteries offer extended driving range, limiting “range-anxiety” for Americans.
Lacking an FTA with the United States, the Indonesian government actively pushed for a “critical minerals agreement,” a critical mineral focused mini-FTA, that would have made Indonesia’s nickel IRA compliant after the initial passage. But all potential minerals agreements faced bipartisan criticism, and a potential Indonesia agreement received intense scrutiny. Now any discussion over a critical minerals agreement is moot.
Without a new strategy that accounts for the elimination of 30D, combined with Indonesia’s continued dominance, the nickel market will continue to consolidate. The United States needs to decide on a new strategy for nickel and Indonesia: build a separate supply chain because of issues with Chinese involvement and labor and environmental standards, or actively engage with the leading producer to ensure that U.S. companies benefit?
Building a Western focused supply chain would require a multipart strategy that utilizes targeted tariffs and strategic investments in coordination with key allies.
Tariffing Indonesian nickel directly is challenging, as the U.S. imports little to none of it. The United States does not have the midstream capabilities to refine the material. Instead, trade actions would need to focus on finished goods – battery cells, packs, and electric vehicles – that contain refined Indonesian nickel. These tariffs could be implemented as a result of the Section 232 investigation the Department of Commerce is currently undertaking on processed critical minerals and derivative products. Any trade actions would need to be undertaken in coordination with strategic investments into non-Indonesian nickel projects across the supply chain to finance new mine and processing facilities or support existing mines nearing care and maintenance. The U.S. International Development Finance Corporation (DFC) has already expressed interest in nickel projects in Brazil and Tanzania.
In an ideal scenario, the strategy would be coordinated with key nickel producers like Australia, Canada, New Caledonia, Norway, and others, who could offer domestic incentives to support key mines. At the same time, consumer economies such as the EU, Japan, and South Korea could impose similar tariffs to reinforce non-Indonesian supply chains. Together, these measures would establish a premium for Western-backed projects, helping them compete on cost despite higher environmental and labor standards. This strategy would take several years to get off the ground as production at new mines or the construction of processing facilities require significant time.
Australia, Canada, and potential U.S. projects stand to benefit from this strategy. But the biggest winner would be China. Its dominant position in Indonesia would only strengthen, giving their firms continued access to low-cost nickel. The biggest losers would be automakers and battery manufacturers in the U.S., Europe, Japan, and South Korea. Swapping EV tax credits for tariffs would raise their production costs, making electric vehicles less competitive with internal combustion engine models. This would further slow adoption and widen the gap with Chinese automakers.
This strategy is also unlikely to succeed. Coordinating tariffs, investments, and domestic incentives across allied nations is politically and logistically difficult in the best environments. It is impossible in the current Trump administration-led environment.
The U.S. and its partners also lack the resources to develop parallel supply chains for every mineral on the USGS critical list. Washington needs to prioritize what minerals are the most important for national security purposes while being willing to rely on foreign supply chains for other minerals. I do not think nickel rises to the same level of criticality as other key minerals when considering potential supply disruptions. Immediate efforts to reduce reliance on China should focus on minerals where Beijing controls strategic chokepoints domestically. In terms of nickel, the U.S. should instead prioritize the midstream by onshoring precursor and cathode active material (PCAM and CAM) production.
This means the best strategy is direct engagement with Indonesia and investment into their nickel sector. The Trump administration and Indonesia are finalizing trade negotiations and have the opportunity to make cooperation on nickel a major part of the final deal.
Indonesia, like other resource rich developing countries, wants to diversify away from China. They specifically want increased access to the U.S. market because it has the highest growth potential due to the popularity of nickel-rich lithium-ion batteries. The new Foreign Entity of Concern (FEOC) restrictions for manufacturing tax credit (45X) make sourcing from Indonesia challenging but the Indonesian government has shown the willingness to support divestment and reduce ownership stakes in projects in order to get U.S. investment. The trade negotiations are the best opportunity to get responsible U.S. participation in the market and lift environmental and labor standards.
Chinese ownership makes direct U.S. government investment from DFC or EXIM mining and processing projects unlikely. But the DFC could back energy infrastructure projects critical to cleaner nickel production, while EXIM could leverage its “Make More in America” initiative to finance domestic PCAM and CAM production using Indonesian nickel as feedstock.
The Ford model provides the best example for American engagement in Indonesia. It is unlikely new Western mining companies would become involved in the Indonesian nickel industry given policy uncertainty around royalties, depressed prices, and the current incumbents. Instead, the U.S. can utilize the trade negotiations to push for American automakers or commodity firms to take ownership stakes in key projects and receive the subsequent offtake for domestic production. While Chinese companies dominate the industry, Benchmark estimates the share of majority Chinese owned battery grade production in Indonesia will decrease from 80 percent to 54 percent by the early 2030s. American companies can partner with Vale Indonesia, Eramet, Harita Nickel, or other Indonesian companies.
Lower environmental and labor standards have been a key sticking point for avoiding Indonesia. Story after story highlights the environmental damage caused by the nickel sector. Indonesia needs to raise environmental standards, especially regarding its reliance on coal for processing. But the U.S. has limited leverage to drive these changes by standing on the sidelines. Indonesian companies “want assurances that putting money into ESG will lead to further investment from the West” according to Uzcategui. Active and direct engagement is the only way that the U.S. can give those assurances and push for meaningful improvements. Indonesian companies have already shown their willingness to raise standards, even committing to an IRMA audit — one of the most rigorous in the mining industry.
Other critics have pointed to the export ban as a major impediment to engagement. Despite reports after the initial deal suggesting the elimination of trade barriers, it is highly unlikely that Indonesia will change their export restrictions on raw material. Even if they did, the United States does not have the capabilities to process the ore. But more importantly, the export ban is beneficial to the U.S as the nickel would be flowing to China for processing if not for the ban. The United States should view any major critical mineral production out of China as a strategic win as it is out of the reach of potential export restrictions from Beijing.
Comparisons to the oil and gas sectors are often overused when discussing critical minerals. But the last 100 years of energy diplomacy should remind us that we cannot always pick our partners when sourcing key commodities. Indonesia is not the perfect partner, but they cannot be ignored. Direct engagement with them will make American automakers more competitive and make the nickel industry more sustainable.